Eircom, Ireland's former state-monopoly telco, was privatised in a blaze of publicity and welter of cash. But that was then and this is now and these days austerity is the order of the day and Eircom is Ireland in microcosm - in debt and dire straits. Martyn Warwick reports.
Last week, the TM World, the Telemanagement Forum's annual shindig that for years past has been held in Nice, in the South of France, was re-located to Dublin, Ireland. Word has it that the show and conference moved from the sunny south to what turned out to be the windy and wet north-west because the city fathers, desperately keen to get delegates (and their cash) to a city visibly suffering the after-effects of a decade-long binge fuelled by the easy availability of silly money, made the Forum an offer it couldn't refuse.
Gossip says Dublin's impressive new Convention Centre was made either freely available to the TMF or was rented-out to it at an incredibly low rate just to get some use out of the place. The quid pro quo, it is said, is that the show will be tied-in to Dublin for at least another year - the second time around at rather more commercial rates.
If these stories are true, they yet more evidence (in addition to the bail-out, the job losses, the rising unemployment, the increasing tide of emigration, the enforced pay cuts, the incredibly high prices of everything, the overt hatred of the banks and their top management and the abandoned buildings and infrastructure programmes) that Ireland is in big trouble and has at least a decade of austerity ahead of it.
A prime case in point is the incumbent (and former state-monopoly) operator Eircom. The telco is struggling and says publicly that it will have to speed-up negotiations with both lenders and shareholders on the restructuring its massive debts.
Yesterday evening, Dublin-time, the credit rating agency Moody's issued a statement saying that the "anticipated sharp decline in Eircom's earnings over the next 12 months makes the telco's capital structure unsustainable."
Eircom itself says that if a solution to its debt problems cannot be found within the next three months it will breach in its financial covenants.
This would have untold ramifications for both the company and the country.
It's all so different from when Eircom, with much fanfare, went public and the then government encouraged Irish citizens to snap up as many shares as they could as quickly as possible. Nowadays, Eircom is majority-owned Temasek (a part of Singapore Technologies Telemedia, or STT), and, at the end of 2010, the Irish telco had debts of €3.75 billion.
Eircom's CEO, Paul Donovan, says, "It is imperative that we accelerate the discussions with our lenders and shareholders about how we manage a potential breach. We will need to put the company on a sustainable footing with regard to a future financial structure and that includes the amount of debt that we have on our balance sheet and the terms of that debt."
That's the story of today's Ireland writ small in one corporation.
Eircom's Q1 revenues were down 11 per cent to €407 million and that's after the company effected a 13 percent reduction in operational costs. Next week, Eircom staff will suffer a 10 per cent cut in wages. However, it is generally acknowledged that these measures will not be enough.
Paul Donovan adds, "Despite sustained progress to reduce operational costs, the underlying fundamentals of the Irish economy and intense competition continue to create trading challenges for the group across both our fixed and mobile segments. Our recent union collective agreement is another important step toward securing the future of the group, but, spite these steps, the group is likely to see an accelerating decline in EBITDA in the coming 12 months."
Meanwhile, Moody's adjudges that Eircom is "at substantial risk of default" and has downgraded the company's ratings accordingly. Any loand it might get will now cost a crippling amount more in increased interest charges and so the vicious spiral continues.
The simple fact is that Eircom needs a massive injection of equity but has no idea where it might raise the necessary cash. And it's for sure that ordinary shareholders aren't going to use part of their dwindling resources to throw good money after bad. STT might have to step into the breach and pony-up some readies but if it does so it'll be with gritted teeth and there's sure to be some taught strings attached.
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